Question: Short Question 3: (30 points) This question is about the Solow growth model from Chapter 5. Consider a countries Am- brosia and Burunda. Ambrosia's GDP

 Short Question 3: (30 points) This question is about the Solow

Short Question 3: (30 points) This question is about the Solow growth model from Chapter 5. Consider a countries Am- brosia and Burunda. Ambrosia's GDP per worker is 1.96 times that of Burunda. The ratio of investment to output is 0.35 in Ambrosia, and in Burunda it is 0.25. Labour supply is constant over time in both countries. So is total factor productivity (TFP). Assume both countries are in their respective steady states. Suppose output in each country i = A, B is produced according to Yit = A; K,. L.-a where Yit is output for country i at time t, A; is TFP for country , Ka is capital stock in country i at time t, and L; is labor in country i. Capital is accumulated according to AKitti = s:Vit - dKit (1) Assume that the depreciation rate and the capital share are same across two countries. (a) Derive an expression for the steady state value of output per worker (Y/L) in each country i in terms of AA, SA, d and a for country A, and in terms of AB, SB, d and a for country B. (10 points)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!